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India's largest state goes to polls. Here's what that means for PM Modi

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Indian Prime Minister Narendra Modi tested the public with his controversial banknote policy last year. Now, upcoming state elections will give citizens a chance to grade Modi's leadership on the matter. Elections in five states—Uttar Pradesh, Goa, Uttarakhand, Punjab and Manipur—kick off this month, with final results due March 11. First up are Goa and Punjab, where polls open on Saturday.

As the country's most populous province and one with the biggest share of seats in parliament, Uttar Pradesh is a political bellwether and will be of most importance for the ruling Bharatiya Janata Party (BJP). Voting there begins Feb. 11.

Because the polls come on the heels of demonetization, that's set to be a major theme. "The state poll results will be a key indicator for the 2019 general election on how people viewed Modi's drive against black money," Bank of America Merrill Lynch (BofAML) summed up in a recent report.

In November, Modi recalled existing 500 ($7.35) and 1,000 ($14.70) rupee notes, which make up 86 percent of Indian currency, and issued new 500 and 2,000 rupee notes in their replacement. The shock announcement, aimed at cracking down on undeclared revenues, caused a drastic cash shortage and economic pain, hitting everything from factory output to consumption.

Public opinion was mixed at the time; many complained about the impact on low-income citizens and business supply chains, while others praised Modi for his anti-corruption efforts.

Assessing the BJP's chances

Nearly three months on, Modi appears to continue to enjoy widespread support, pointed out Jan Zalewski, senior South Asia analyst at Verisk Maplecroft. Despite poor implementation and widespread ill-effects linked to the currency reform, the Prime Minister is still able to enter the election race on a moral high ground because he branded demonetization as an anti-corruption measure, he continued.

Recent opinion polls indicate victory for the BJP, particularly in Uttar Pradesh, where its primary rivals are regional factions, including the incumbent Samajwadi Party (SP) and the Bahujan Samaj Party (BSP). In the other four states, the BJP faces national opposition parties, such as Congress.

A survey conducted earlier this month by THE WEEK-Hansa Research predicted the BJP to win the battleground state, while a separate survey by Axis-My-India for the India Today Group also projected a BJP majority there. BofAML however offered a more pessimistic take on the BJP's chances in Uttar Pradesh, noting that the race was split three-ways with the SP and BSP.

A BJP loss in the all-important state could result in several long-term consequences.

If SP candidate—current chief minister Akhilesh Yadav—wins, SP will take a more prominent role in opposing Modi's agenda in New Delhi, with Yadav emerging as "a meaningful political threat to the BJP as a national leader and potential alternative to Modi," political consultancy Eurasia said in a note.

If the low caste-centric BSP is victorious, that would imply caste and identity politics remain a major issue in India, which could result in the BSP having less bearing on the BJP and national politics, Eurasia explained.

To boost its chances, Modi's administration was expected to unveil voter-friendly policies in its annual budget on Wednesday, which strategically preceded the polls. For the 2017-2018 fiscal year, finance minister Arun Jaitley did announce a number of populist measures, including more investment on rural development and infrastructure.

"The mere potential of voter backlash raised the prospects of a populist budget," said Zalewski.

Is Uttar Pradesh really crucial?

For the bulk of legislation to be signed into law, approval from both houses of parliament is required. The BJP and its allies account for 339 of the 545 seats in the lower house, called the Lok Sabha, but they only hold 73 of the 250 seats in the upper house, or Rajya Sabha.

Thus, the upper house is the biggest roadblock to Modi's reform agenda, especially his plans to revamp Indian labor laws, Eurasia explained. And that situation is unlikely to change, even if Modi's party sweeps Uttar Pradesh (UP), it added.

"Even if the BJP manages to increase its foothold in the UP state assembly from the present 40 seats to 250, unprecedented as no party has obtained this many seats in the last 25 years, it will equate to a net gain in the upper house of 5 seats in 2018, 5 in 2020, and 6 in 2022; significantly shy of the 53 the party needs to be able to form a majority in the upper house with its allies."


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